Correlation Between Changchun Faway and China Life

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Can any of the company-specific risk be diversified away by investing in both Changchun Faway and China Life at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Changchun Faway and China Life into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Changchun Faway Automobile and China Life Insurance, you can compare the effects of market volatilities on Changchun Faway and China Life and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Changchun Faway with a short position of China Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Changchun Faway and China Life.

Diversification Opportunities for Changchun Faway and China Life

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Changchun and China is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Changchun Faway Automobile and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance and Changchun Faway is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Changchun Faway Automobile are associated (or correlated) with China Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Changchun Faway i.e., Changchun Faway and China Life go up and down completely randomly.

Pair Corralation between Changchun Faway and China Life

Assuming the 90 days trading horizon Changchun Faway Automobile is expected to under-perform the China Life. But the stock apears to be less risky and, when comparing its historical volatility, Changchun Faway Automobile is 1.29 times less risky than China Life. The stock trades about -0.15 of its potential returns per unit of risk. The China Life Insurance is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  4,431  in China Life Insurance on September 20, 2024 and sell it today you would lose (267.00) from holding China Life Insurance or give up 6.03% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Changchun Faway Automobile  vs.  China Life Insurance

 Performance 
       Timeline  
Changchun Faway Auto 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Changchun Faway Automobile are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Changchun Faway sustained solid returns over the last few months and may actually be approaching a breakup point.
China Life Insurance 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China Life sustained solid returns over the last few months and may actually be approaching a breakup point.

Changchun Faway and China Life Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Changchun Faway and China Life

The main advantage of trading using opposite Changchun Faway and China Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Changchun Faway position performs unexpectedly, China Life can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in China Life will offset losses from the drop in China Life's long position.
The idea behind Changchun Faway Automobile and China Life Insurance pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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